Coffee Market Report January 03 2017

The 2016 year has ended with the coffee markets joining the majority of commodity markets within a better year and with the Reuters Equal Weight Continuous Commodity Index ending the year 10.89% higher and with the New York washed arabica coffee market having ended the year 8.17% higher in value, while the London robusta coffee market has ended the year 39.74% higher in value. 

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non-Commercial Speculative sector of this market decrease their net long position within the market by 47.28% during the week of trade leading up to Tuesday 27th. December; to register a net long position of 7,811 Lots on the day.  This net long position which is the equivalent of 2,214,384 bags has most likely been increased again, following the period of mixed but overall more positive trade, which has since followed. 

With the month of December past, the Indonesia government trade data from Sumatra which is the leading coffee producing island within Indonesia, has reported that the islands robusta coffee exports for the month were 124,929 bags or 47.47% higher than the same month in the previous year, at a total of 388,077 bags.   However, following the modest export volumes of the month of October, the cumulative exports for the first three months of this new October 2016 to September 2017 coffee year are 96,775 bags or 7.88% lower than the same period in the previous coffee year, at a total of 1,130,646 bags. 

This dip in the cumulative exports for the first three months of the present coffee year follows a dismal performance for the previous October 2015 to September 2016 coffee year, where Sumatra recorded robusta coffee exports for the year to have been 2,678,617 bags or 50.49% lower than the same period in the previous 2014/2015 coffee year, at a total of only 2,626,936 bags.   Thus, one might think that albeit that one can expect Sumatra to continue to post relatively modest robusta coffee export volumes through to at least May next year that with the advent of a much improved new 2017 crop, it shall assist to contribute rising export volumes from thereon and more than likely, an overall improved export performance for this new 2016/2017 coffee year. 

The Trade ministry in Brazil have reported that the countries coffee exports for the month of December were 64,011 bags or 2.15% lower than the same month in the previous year, at a total of 2,912,716 bags.   This number with a sharp dip in the exports of conilon robusta coffees following last year’s dismal conilon crop, would indicate that there has in fact been a rise in the arabica coffee exports of the month. 

The increase in arabica coffee exports from Brazil post the larger new arabica coffee crop last year is however not bringing to the fore significant profits for the countries arabica coffee farmers for new sales, as while the reference prices of the New York market have posted an 8.17% increase for last year, the Brazil Real has firmed by 20% over the same period.   Thus, while they would not doubt have done well with the value of new crop sales for the past few months and while the higher levels of the New York market assisted to add value, the softer nature of this market and with the Real now trading at a relatively firm 3.28 to the U.S. dollar and with good early and profitable sales in hand, is now likely to contribute to some degree of internal market price resistance for new sales.  A factor that is likely to reduce the volumes of price fixation hedge selling from Brazil, which might a modestly supportive factor for the short-term fortunes of the New York market. 

The March to March contracts arbitrage between the London and New York markets broadened on Friday, to register this at 40.07 usc/Lb., while this equates to a 29.24% price discount for the London robusta coffee market.  This narrowing arbitrage is now becoming less of an attractive factor for the roasters who have considered robusta coffees to be an opportunist discount component, within their mostly arabica coffee blends. 

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 2,107 bags on Friday; to register these stocks at 1,245,379 bags.  There was meanwhile a larger in number 9,259 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 47,988 bags. 

The commodity markets had a mixed day for the last trading day of the year on Friday, with the overall macro commodity index taking a near to steady track for the day.  The Sugar, Coffee, Copper, Orange Juice, Wheat and Corn markets had a day of buoyancy, while the Oil Natural Gas, Cocoa, Cotton, Soybean, Gold and Silver markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.09% higher; to see this Index registered at 420.64.   The day starts with the U.S. dollar showing some degree of buoyancy and trading at 1.230 to Sterling and 1.048 to the Euro, while North Sea Oil is showing some degree of buoyancy and is selling at $ 55.60 per barrel. 

The London market started the day close to par on Friday, while the New York market showed early buoyancy and with the London market joining the New York market within positive territory for early afternoon trade.   This set the markets for further gains and with the New York market triggering buy stops, to accentuate the gains.  The London market closed early and within something of an upside track, but with the New York market coming off the boil in later trade, to fall back into more modest positive territory.  The London market ended the day on a positive note and with 81.5% of the earlier gains of the day intact, while the New York market ended the day on a less convincing note and with only 47.1% of the earlier gains of the day intact.   This close might assist to improve the technical picture for the markets but one might think that there shall be some degree of uncertain caution and perhaps only a hesitant steady start for early trade today against the prices set on Friday, as follows: 

LONDON ROBUSTA US$/MT                           NEW YORK ARABICA USc/Lb. 

JAN      2159 + 34

MAR     2138 + 22                                               MAR   137.05 + 1.60

MAY     2144 + 21                                               MAY   139.40 + 1.65

JUL      2149 + 19                                               JUL     141.70 + 1.65

SEP      2152 + 19                                              SEP     143.70 + 1.60

NOV     2151 + 13                                               DEC    146.70 + 1.60

JAN      2149 + 13                                               MAR   149.60 + 1.60

MAR     2150 + 13                                               MAY   151.30 + 1.60

MAY     2155 + 13                                               JUL    152.90 + 1.55

JUL      2165 + 13                                               SEP    154.60 + 1.55